Oil Prices Plummet 15% as Ceasefire Hopes Emerge in Iran-Israel Conflict

The global oil market has experienced a dramatic downturn, with crude oil prices tumbling to levels not seen since before the recent Iran-Israel conflict erupted. Both Brent and WTI futures for September delivery saw significant declines on Tuesday, easing approximately 3% as the prospect of a ceasefire between the two nations took hold.

Brent oil for September delivery plummeted by $2.65 a barrel, settling at the $68.65 mark. This follows an 8.53% drop in the preceding session, cumulatively pushing its fall from Monday's high of $79.40 a barrel to a staggering 15%. This sharp reversal has effectively erased the "war premium" that had built up, with prices now comfortably below the June 13 closing price – the day the conflict intensified. Indeed, Brent oil, which had closed at $69.36 on June 12, touched a low of $67.42 today.

The catalyst for this market reaction was US President Donald Trump's declaration via a social media post that Israel and Iran had agreed to a "complete and total ceasefire." Trump's post on Truth Social stated that the ceasefire would be phased in over 12 hours, at which point the conflict, dubbed "THE 12 DAY WAR," would be considered ended. He even offered congratulations to both countries for their "Stamina, Courage, and Intelligence."

However, the situation remains nuanced. While the market responded with optimism, Iran's Foreign Minister, Seyed Abbas Araghchi, offered a more cautious tone. In a post on X, he denied that any "agreement" on a ceasefire had been formally reached. He clarified, however, that "provided that the Israeli regime stops its illegal aggression against the Iranian people no later than 4 am Tehran time, we have no intention to continue our response afterwards." Araghchi added that the "final decision on the cessation of our military operations will be made later," leaving room for further developments.

The market's immediate relief stems from the perceived de-escalation, especially given recent concerns about the Strait of Hormuz. On Sunday, Iran’s parliament had voted to close this vital global oil transit chokepoint. While this move required further approval from the Supreme National Security Council and the Supreme Leader, the mere threat had sent jitters through global energy markets. Nearly a fifth of the world’s crude oil passes through the strait, and any disruption could have triggered a sharp rally towards the $120-$130 per barrel mark.

However, as analysts like Kotak Securities have pointed out, such a move would be severely self-destructive for Iran, as over half of the country’s own energy exports also transit through the Strait of Hormuz. Prathamesh Mallya, DVP-Research, Non-Agri Commodities and Currencies at Angel One, echoed this sentiment, highlighting Iran's historical pattern of threatening to close the Strait without actually doing so. "Given the historical context, Iran has threatened close the Strait of Hormuz several times in the past, but has never actually done so which gives a breathing space for oil markets," Mallya stated. He suggested a baseline for oil prices at $60, a midline at $100, and an extreme point at $120-130.

The current drop in oil prices reflects the market's assessment that the immediate threat of widespread conflict and supply disruption has significantly diminished. While Iran's official stance on the ceasefire is still being clarified, the de-escalation rhetoric has been sufficient to calm market fears and bring crude back to levels seen before the recent Middle East flare-up.